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Markets, mergers and mayhem

Global stock markets have crashed. We have seen some of the largest single day falls in history and peoples' pensions have taken a battering. Just what is going on asks Steve Thomas-Emberson

Some of these falls have been counter-balanced by the biggest day rises and many of the top global companies are continuing to give a 5 or 7% yield on their shares. It is all about perception, the most important word in global markets and even more important than profit!

Perception has a lot to do with how investors, markets, buyers and sellers measure the global packaging industry as a whole. That is a perception of value to both buyer and seller and, in today’s market place, probably the most important animal – the investor.

This perception can be about what constitutes the global as well as local packaging industry. It does vary through to a multiple value given to a company based on either its turnover or profits. One market sector can average 20 times profit right down to six in another, a big market value difference for both buyer and seller alike.

If one sets aside the buying and selling scenario and concentrates on an investor, the industry could easily give a perception of a required high level of investment set against very low margins. Where then is the investment glow or comfort for any potential investment company?

The potential for investors with serious intent is in the bundling up of companies, a kind of bringing together of similar pack providers across the globe. This is not only an investment but also strategic thinking in a market that is both global and local.

One such venture capital house – PPM Ventures [the private investment arm of Prudential] – has a real success on its hands with such a mix. “There is a perception that the packaging market as a FTSE sector has been out of favour but there is clearly some activity in the mergers and acquisitions field,” explains PPM Ventures Gareth Whiley.

“Maybe because other sectors have lost their glow it is seen as a market place worth scrutinising, particularly in the US. There is increasing private equity across the marketplace in glass, cans and card. There is scope for consolidation, global sourcing and partnerships.

“We are an equity investor in Spear which provides labels, particularly for the drinks business. Our investment was $60M that put together three businesses and made us a 50% partner. The investment was to fund development and to take the business on to another global level. The need for a global position is paramount.

“Our new European headquarters are in Wales and another operation business in New Hampshire, US. What is and was critical to our investment and development strategy was that all the founders are still on board and developing the business. We are not packaging people!

“It is also worth mentioning that the investment is not a build up and sell. There is no prescribed timetable for an exit at all. For PPM Ventures it is proving to be a very good investment indeed.”

With this type of investment activity going on what are the actual benefits to the packaging company clients? Christian George, packaging analyst at Credit Lyonaise, gives his view from both angles.

“One of the main benefits of institutional investment, mergers and acquisitions is that producers can now make a living as global markets and the packaging customer base has expanded. The customer can now rely on packaging product being of high standard anywhere in the world. Supply chain management and logistics have also assisted the customer.”

This view is shared by Gareth Whiley. “One has to be global in order to serve the local business and the local business can change from country to country. Europe has a group of major players that can easily operate on a pan-euro basis whereas in the US it is still very local.”

What this does show is there are more ways of skinning a cat. For small companies seeking investment partners this may be a whole lot more beneficial than just selling out.

The sector is becoming one that is being viewed in a favourable light. Giving away a share percentage in exchange for a partner that wants to go places seems an avenue that would appeal to a lot of packaging companies as well as the client base.